St.

Xavier’s College
College, Kolkata
Logistics & Supply Chain Management
2009-2010
 A CASE STUDY ON

Wal-Mart Changes Tactics to Meet

International Tastes

Presented by
Nirmalya Fadikar
Roll no. – 15
Contents

1. Introduction to Global Supply Chain Management.

2. History and Facts about Wal-Mart.

3. Case Objective.

4. Case Overview.

5. Solution.

6. Conclusion.
INTRODUCTION
GLOBAL SUPPLY CHAIN MANAGEMENT

With increased globalization and offshore sourcing, global supply chain management is
becoming an important issue for many businesses. Like traditional, supply chain
management, the underlying factors behind the trend are reducing the costs of
procurement and decreasing the risks related to purchasing activities. The big difference
is that global supply chain management involves a company's worldwide interests and
suppliers rather than simply a local or national orientation.

Because global supply chain management usually involves a plethora of countries, it also
usually comes with a plethora of new difficulties that need to be dealt with
appropriately. One that companies need to consider is the overall costs. While local
labor costs may be significantly lower, companies must also focus on the costs of space,
tariffs, and other expenses related to doing business overseas. Additionally, companies
need to factor in the exchange rate. Obviously, companies must do their research and
give serious consideration to all of these different elements as part of their global supply
management approach.

Time is another big issue that should be addressed when dealing with global supply
chain management. The productivity of the overseas employees and the extended
shipping times can either positively or negatively affect the company's lead time, but
either way these times need to be figured into the overall procurement plan. Other
factors can also come into play here as well. For example, the weather conditions on
one side of the world often vary greatly from those on the other and can impact
production and shipping dramatically. Also, customs clearance time and other
governmental red tape can add further delays that need to be planned for and figured
into the big picture.

Besides contemplating these issues, a business attempting to manage its global supply
chain must also ask itself a number of other serious questions. First, the company needs
to make decisions about its overall outsourcing plan. For whatever reason, businesses
may desire to keep some aspects of supply chain closer to home. However, these
reasons are not quite as important as other countries advance technologically. For
example, some parts of India have now become centers for high-tech outsourced
services which may once have been done in-house only out of necessity. Not only are
provided to companies by highly qualified, overseas workers, but they are being done at
a fraction of the price they could be done in the United States or any other Western
country.
 Another issue that must be incorporated into a global supply chain management
strategy is supplier selection. Comparing vendor bids from within the company's parent-
country can be difficult enough but comparing bids from an array of global suppliers can
be even more complex. How to make these choices is one of the first decisions
companies must make, and it should be a decision firmly based on research. Too often
companies jump on the lowest price instead of taking the time to factor in all of the
other elements, including those related to money and time which were discussed
above. Additionally, companies must make decisions about the number of suppliers to
use. Fewer supplies may be easier to manage but could also lead to potential problems
if one vendor is unable to deliver as expected or if one vendor tries to leverage its
supply power to obtain price concessions.

Finally, companies who choose to ship their manufacturing overseas may have to face
some additional considerations as well. Questions regarding the number of plants that
are needed, as well as the locations for those plants can pose difficult logistical
problems for companies. However, it often helps to examine these issues in terms of the
global supply chain. For example, if a business uses a number of vendors around
Bangalore, India than it may make sense to locate the manufacturing plant that would
utilize those supplies in or around Bangalore as well. Not only will this provide lower
employee costs, but overall shipping and tariff expenses should also be reduced. This
would then save the company money.

Freight Forwarders

The freight forwarder is concerned with organizing transportation for companies. Their primary
task is to combine smaller shipments to create a single large shipment to minimize the shipping
costs. Companies using a freight forwarder will benefit as they are charged a much smaller
shipping cost than if they had shipped their product independently. The freight forwarder
provides other services which are beneficial to the exporting company. The services include
documentation, payment and carrier selection.

Export Management Company (EMC)

The export management company offers services to companies that have not exported items
before. The EMC offers all the services that a company would have if they had an internal
export department. The EMC deals with export documents and operate as the company’s agent
in the overseas market. This may include selling the items directly or operating a sales
department to process sales orders.
Export Trading Company

The export trading company exports goods for companies who hire them. The trading company
will identify and work with companies in the foreign country who will market and sell the
products. The export trading company will provide services including export documentation,
logistics and transportation.

Export Packers

The export packing company provides a service to companies unfamiliar with exporting. Some
countries require specific packaging specifications and the export packer’s knowledge in these
matters are invaluable to the novice exporter. In addition the export packer can advise
companies on appropriate design and materials for the packaging of their items. Packing
companies can also assist companies in minimizing packaging so that they can maximize the
number of items to be shipped and reduce shipping costs.

Customs Brokers

The customs broker can help companies to avoid the pitfalls involved with customs regulations
and dealing with the complete customs process. The customs requirements of many countries
can be difficult to understand for the novice exporter and the knowledge and experience of the
customs broker is vital. Many countries have specific laws and documentation requirements for
importing items that are not always obvious to the exporter. The customs broker can offer a
company a complete package of services that are essential when a company is exporting to a
large number of countries.

Because of the complexities of the global supply chain companies can quickly become
successful in new markets when they use the experience of facilitators and intermediaries.
However these services do add an additional cost to the price of the items being exported.
 FACTS

Wal-Mart Stores, Inc.

Type Public (NYSE: WMT)

Founded Rogers, Arkansas, U.S. (1962)

Founder Sam Walton

Headquarters Bentonville, Arkansas, U.S.

Area served Worldwide

Mike Duke
(CEO)
H. Lee Scott
Key people
(Chairman of the Executive
Committee of the Board)
S. Robson Walton (Chairman)

Industry Retailing

Discount Stores
Products Supercenters
Neighborhood Markets

Revenue ▲ US$ 404.16 Billion (2009)

Operating
▲ US$ 30.07 Billion (2009)
income

Net income ▲ US$ 13.59 Billion (2009)

Total assets ▲ US$ 163.514 Billion (2007)

Total equity ▲ US$ 64.608 Billion (2007)

Wal-Mart is an American public corporation that runs a chain of large, discount department
stores. It is the world's largest public corporation by revenue, according to the 2008 Fortune
Global 500. The company was founded by Sam Walton in 1962, incorporated on October 31,
1969, and listed on the New York Stock Exchange in 1972. Wal-Mart is the largest private
employer and the largest grocery retailer in the United States.

It owns and operates the Sam's Club retail warehouses in North America. Wal-Mart's
operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club, and Wal-Mart
International. The company does business in nine different retail formats: supercenters, food
and drugs, general merchandise stores, bodegas (small markets), cash and carry stores,
membership warehouse clubs, apparel stores, soft discount stores and restaurants.

Wal-Mart's international operations currently comprise 2,980 stores in 14 countries outside the
United States. According to Wal-Mart's 2006 Annual Report, the International division
accounted for about 20.1% of sales. There are wholly owned operations in Argentina, Brazil,
Canada, Puerto Rico (although PR is part of the US, the company's operations there are
managed through its international division), and the UK. With 1.8 million employees worldwide,
the company is the largest private employer in the US and Mexico, and one of the largest in
Canada.

In 2004, Wal-Mart bought the 116 stores in the Bompreço supermarket chain in northeastern
Brazil. In late 2005, it took control of the Brazilian operations of Sonae Distribution Group
through its new subsidiary, WMS Supermercados do Brasil, thus acquiring control of the
Nacional and Mercadorama supermarket chains, the leaders in the Rio Grande do Sul and
Paraná states, respectively. None of these was rebranded. As of August 2006, Wal-Mart
operates 71 Bompreço stores, 27 Hiper-Bompreço stores, 15 Balaio stores, and three Hiper-
Magazines (all originally parts of Bompreço). It also runs 19 Wal-Mart Supercenters, 13 Sam's
Club stores, and two Todo Dia stores. With the acquisition of Bompreço and Sonae, Wal-Mart is
currently the third largest supermarket chain in Brazil, behind Carrefour and Pão de Açúcar.

Analysts perceived the phenomenal growth of Wal-Mart to the emphasis being placed in
customer needs and the reduction of cost through efficient supply management practices as
being laid down by Mr. Walton as Wal-Mart’s core principles in running and competitively
staying in the business.
Innovative Supply Chain Practices:

Cross Docking:

Cross-docking refers to the logistics practice in the unloading and loading of materials with little
or no unnecessary storage in between to ensure that the quality of goods would be enjoyed by
the customers by first hand. To avoid all sorts of potent causes of inefficiencies in the
distribution operations, Wal-Mart features a logistic infrastructure that is guaranteed to be fast
and responsive transportation system wherein the distribution centers are being serviced.

State of art technology system to predict the level of inventory:

The use of technological infrastructure such as information technology and state-of-the art
communication system is a very powerful tool in any business today that guarantees up-to-date
and hasten process in the logistic operations which leads to being able to cater to the needs
and demands of the customer in the least time possible. Therefore, to hand over excellent
service that is tantamount to customer satisfaction. Wal-Mart launches its own satellite
communication system as they see the need to expand not only their operations but also their
communication system such that they can sustain the growing demand of communication
essential to keep terms in the operation of the increasing retail outlets or distribution centers.
 Case Objectives

1. Reasons for Wal-Mart Global Expansion

2. Benefit of having suppliers in different countries
3. Need for strong centralized control of stores
4. Need for strong local control of stores.
5. Pitfalls and opportunities would Wal-Mart face in next few years.
6. Sources of risk in global supply chain and process of mitigating risks.

Questions
1. Other than a need to expand, what other reasons would Wal-Mart have for
opening stores globally?

2. Why would it be beneficial for Wal-Mart to have suppliers in different

countries?

3. Why would Wal-Mart want strong centralized control of its stores? Why
would Wal-Mart want strong local control of stores?

4. What pitfalls and opportunities, other than those mentioned in this case,
will Wal-Mart face over the next few years?

5. What are the sources of risks faced by the global supply chain and how can
the firm mitigate the various risks?
 Case Overviews
Wal-Mart, one of America's chain hypermarkets, entered Argentina and Brazil, along with other
nations across the globe, in an attempt to capture shares of a lucrative market. By exporting
their "Main Street USA"-type shop all over the world, Wal-Mart sought to bring a different
shopping experience to other cultures and to make a lot of money in the process. However,
because of the nature of the supermarket industry in Argentina and cultural influences,
Argentineans are not embracing American supermarkets, as Wal-Mart is not seeing the profits
the company had hoped at the beginning of its venture. The same problem is with Brazil also.
Wal-mart faced a lot of problem while implementing Everyday Low price Strategy (EDLP). Brutal
competition and inability of achieving Wal-Mart’s trademark strategy of Economies of Scale
made impact in its bottom line.

Many things were depend on Wal-Mart global expansion drive. It is not only targeting South
America but also China and Indonesia. Wal-Mart experiences a huge loss of $48million in its
Brazilian operation. Reducing cost in supply chain is crucial for implementing EDLP. It can only
be done by stocking wide variety of merchandise. But it is hurting. Timely delivery of
merchandise is difficult in intense traffic condition of Brazil where Wal-Mart have to depend on
suppliers and contract tuckers. The biggest issue is shipping product on time and get it on the
shelf. Local suppliers are also facing problem in meeting Wal-Mart Specifications. Suppliers are
also opposing Wal-Mart’s aggressive pricing strategy. Wal-Mart also failed to do its homework
before entering South American Market. Wrong planning of stock handling equipment is also a
major pitfall in its South American market operation. Slow adapting of of Brazil’s financial
environment is also a major problem. In Argentina the business faced a major barrier where
small business customers are reluctant to signup with Wal-Mart. Wal-Mart also very much
reluctant in listening its local employees which added another pin to its coffin.

As the first US retailer to enter Argentina in November 1995, Wal-Mart had optimistic hopes of
capturing the Argentine consumers by showing them the benefits of hypermarket shopping and
adding much revenue for good fortune. By offering lower prices than local merchants and other
European chains and American-style service and convenience, Wal-Mart was sure to capture
the hearts and wallets of Argentineans. Unlike its entry into Mexico and Brazil, though, Wal-
Mart was facing obstacles alone in Argentina without the luxury of local partnerships. When
opening its first supercenter, Wal-Mart had to fight protests from suppliers for selling at prices
below costs, a strategy that is not accepted nor regulated in Argentina. Carrefour, a French
hypermarket operator, and Dutch-owned Makro operate combined about 15 hypermarkets in
Argentina. These European competitors are accustomed to dealing with cultural influences of
foreign markets. "It was a dumb thing for Wal-Mart to do," said Kurt Barnard, publisher of the
Barnard Retail Marketing newsletter, describing the interests of Wal-Mart to penetrate foreign
markets. By not understanding cross-cultural influences and not changing the format of their
stores to fit cultural differences, Wal-Mart will be unable to compete in foreign markets,
according to Barnard. Argentina's consumers spend about 33% of their income on food. Wal-
Mart only controls 2.5% of Argentina's food expenditures but 16.5% of non-food expenditures,
leading many to believe that Argentineans are tired of making a separate trip to Wal-Mart for
non-food items, even those being sold at a lower price. European retailers in Argentina are
heeding the call from consumers for neighborhood shops instead of big mega markets. These
companies have plans to reformat their stores into smaller discount chains and convenience
stores in order to appeal to Argentinean taste.

Wal-Mart gaining ground in Argentina and Brazil

BUENOS AIRES, ARGENTINA - Argentina is unique in Wal-Mart's international expansion in that
it is the first truly foreign market the company has entered on its own. A little more than two
years ago, advance Wal-Mart employees including Argentina division VP, coo Steve Furner and
gmm Dan Owen landed here knowing no one. By December 1996, the company operated three
supercenters and three Sam's Clubs, with long-term plans for as many as 40 supercenters. This
year, the company plans to open at least four more supercenters and one or two Sam's Clubs,
bringing the store count to 12.

Argentina is the most affluent of Latin American countries, with an average household income
of about $20,000. The middle class is evolving rapidly, but the retail base has not kept pace with
the nation's evolving taste for U.S.-style consumer goods. The country's dominant retailer is
Carrefour, the French hypermarket operator, which has 14 Argentine stores, most in Buenos
Aires and its suburbs. Carrefour, both here and in Brazil, has refused to cede anything to the
encroaching American giant. With about 20 years of experience in the market and long-term
relationships with the thousands of Argentine vendors, Carrefour has put up what might
possibly be the toughest fight Wal-Mart has encountered since the Kmart price wars of the
1980s.

Carrefour used its clout to influence vendors to refuse to do business with the interloper.
However, that early problem has been overcome, according to Owen. In large part, change has
come about, in many cases, because "local" vendors were the South American divisions of large
U.S. consumer product companies such as Lever Bros. and Procter & Gamble. Wal-Mart applied
its own muscle stateside, and vendor problems quickly evaporated.
 Similarities between retail employment in US Mexico
theUnited States and Mexico
Retail as proportion of 21.2% 21.0%
nonagricultural private employment
Women as percentage of retail 52.5% 51.5%
workforce
Ratio of percentage of women 1.11 1.44
employed, retail/all industries
Median retail wage as percentage 68.2% 87.9%
of wage for all industries

Entry of Wal-Mart redefines South American retail market

Investigates the entry of Wal-Mart in Brazil, and subsequent moves of established retailers and
new entrants with data taken from secondary sources and interviews with executives. First,
internationalization of Wal-Mart and its entry are discussed, which caused an impact on
Brazilian retailing by accelerating the concentration, automation and modernization of the
industry. Competitive reactions were classified in four categories: neutralizing competitor’s
actions, establishing competitive advantage, redefining markets, and changing ownership. It is
argued that Wal-Mart’s experience in Brazil could be an interesting source of learning for
foreign retailers desirous of entering the Brazilian market as well as for local companies that
need to remain competitive to survive.
Solutions :
1. Other than need to expand what other reasons would Wal-Mart have for opening stores
globally?
Sol: Wal-Mart has opening stores globally because of the following reasons:

a) To earn more revenue.

b) To capture the new and emerging markets like South America, Indonesia, China
because the US markets are saturating and overseas markets have lot of growth
opportunities.
c) Global expansion actually fulfills the dream of Wal-Mart Chief Sam Walton to
give Wal-Mart a true Multinational image.

2. Why would it beneficial for Wal-Mart to have suppliers in different countries?

Sol: It is always beneficial for Wal-Mart to have suppliers from different countries because
Wal-Mart international operation is completely based on “Think global act local” strategy. Local
suppliers have the geographical knowledge of the territory where Wal-Mart is operating. They
are in better position to know about the cultural sentiments of the local consumers and can
give first hand primary information about the market because they in direct touch with the
intermediaries. Local suppliers also reduce logistical and sourcing cost. So it is also preferable to
have local suppliers in the international market operation.

3. Why would Wal-Mart want strong centralized control of its stores?

Sol: Strong centralized control signifies strong and stringent control of its operation round the
globe. Every thing that is from procurement to customer service is done by keeping in mind the
interest of the entire operation and this particular move has really become trademark for any
successful organization.
4. Why would Wal-Mart want strong local control?

Sol: Wal-Mart always want strong local control in terms of pricing agreement and delivery time
and product specifications over its suppliers because Wal-Mart operation is completely based
on economies of scale and EDLP. So, without having a strong local control Wal-Mart cannot
practice EDLP.

5. Opportunities of Wal-Mart:

a) Untapped foreign markets like South America, China, Indonesia, and Mexico.
b) Strong customer base.
c) Huge bargaining power with suppliers.
d) Dense network of local suppliers.
e) Presence of warehouse facility in overseas territory also.
f) Financial freedom.
g) Strong market penetration power by offering lowest possible price to its customers which
actually whitewashes its competitors.

6. Pitfalls of Wal-Mart:

a) Operate on the basis of economies of scale which is always not possible in overseas
market.
b) Wal-Mart issue is shipment on time and getting it on shelf. But implementation of this is
not always possible in overseas market because of traffic condition which it already faced
in its Brazilian operation.
c) Local suppliers facing difficulties in meeting Wal-Mart specifications like easy to handle
packaging and adherence to quality which actually force the retailer to rely on imported
goods.
 d) Bargaining with local suppliers doesn’t prove fruitfull.
e) Lack of in-house homework and research is carried out before entering in the foreign
market.

7. Sources of risk in global supply chain management:

a) Problem in supply chain integration.

b) Lack of communication between the supply chain intermediaries.
c) Different Political conditions in different regions.
d) Chances of theft and pilferage.
e) Fluctuations in delivery time.
f) Risk due to unforeseen events like natural calamities.
g) Difficulties in achieving the uniformity in approach.

8. Mitigating Risk:

a) Integrating the supply chain through ERP and Extranet.

b) Taking suitable insurance coverage.
c) Hiring Third Party Logistics provider (3PL).
d) Enhancing Collaborative planning, forecasting and replenishment system (CPFR).
e) Efforts in establishing cultural balances.
f) Bargain with political factors.
g) Increases the efficiency of the entire operation by newly develop technologies and
practices.
 Conclusion

Wal-Mart try to penetrate foreign markets without understanding cross-cultural influences and
not changing the format of their stores to fit cultural differences, Wal-Mart will be unable to
compete in foreign markets, according to Barnard. Argentina's consumers spend about 33% of
their income on food. Wal-Mart only controls 2.5% of Argentina's food expenditures but 16.5%
of non-food expenditures, leading many to believe that Argentineans are tired of making a
separate trip to Wal-Mart for non-food items, even those being sold at a lower price. European
retailers in Argentina are heeding the call from consumers for neighborhood shops instead of
big mega markets. These companies have plans to reformat their stores into smaller discount
chains and convenience stores in order to appeal to Argentinean taste. Wal-Mart very much
reluctant in listening to its Local employees.

The bottom line is:

If Wal-Mart would like to survive in foreign markets, it must be willing to lose its "Hometown
USA" image and start listening to cultural concerns. Doing things "the Wal-Mart way" just
won't cut it.
Recommendations

• The three strategies on the corporate level that Wal-Mart would benefit most from are:
expanding market share by continuing global operations (horizontal growth), backward
vertical integration, no change strategy and divestment strategy.

• Wal-Mart can continue with its current strategy of international expansion. This would
mean the sale of present products or services in new geographic regions. The company
has the needed resources to fulfill (the needed capital and human resources), Wal-Mart
brand is recognizable all over the world, and there are several unsaturated markets still
available. As long as Wal-Mart is the best among its competitors, it should take
advantage of its superior position. Otherwise competitors can be the first to use this
opportunity.

The company has been successfully implementing this strategy. This type of strategy will
give an opportunity for Wal-Mart employees to be promoted by relocating to new
divisions, increase their importance of being part of the successful company.
• Besides the company can undert
undertake
ake some acquisitions, as it did during the recent years.
Purchasing another company already operating in this area could make it easier to take
a strong position, as well as result in synergistic benefits.

• Wal-Mart
Mart can also initiate no changes. As the co
company
mpany has already established itself as
the leader in the retailing industry it can pursue its current course.

• This strategy suggests that the Wal

Wal-Mart should sell off all of its Neighborhood
eighborhood Markets
to local, or possibly one global, food
food-store chains. Byy doing this, the company would be
able to concentrate on the most profitable part of its business, and the cash flow
generated from the sale could be invested in further developing it.